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Paychecks stretch the furthest in smaller cities for most workers, but techies continue to do best in larger, more expensive cities.
Say you’re graduating from college and looking for the best place to start your career, or you are part of an established professional couple looking for a city in which to start your family: Where is the best place for you to live—a leading tech hub like the Bay Area or Boston; a superstar city like New York; or a less-established “rise of the rest” city like Pittsburgh?
A new analysis by Jed Kolko, chief economist at the labor market and jobs site Indeed, breaks down the data, identifying the cities and metro areas where salaries stretch the furthest and workers and families have the most money left over. To do so, he compares salary data from Indeed’s job postings to cost of living data from the U.S. Bureau of Economic Analysis (as we know, differences in living costs are basically all about housing). Kolko’s data cover all 185 United States metros with 250,000 people or more.
So, what happens when you adjust for housing and living costs?
It turns out that workers do best in smaller metros. When salary is adjusted, all of the top 10 metros have fewer than a million people: Brownsville and Laredo, Texas; Toledo and Canton, Ohio; Huntington, West Virginia; Rockford, Illinois; and Modesto, California. As Kolko points out, “unadjusted salaries are 7 percent higher in metros with at least two million people than in metros with fewer than 250,000 people—but salaries after adjusting for living costs are 9 percent lower.”
When it comes to large metros—those with more than 1 million people, the places that do best include metros like Birmingham, Alabama; Memphis; Cincinnati; Milwaukee; and Detroit—many of them Rust Belt metros that were hard hit by the 2008 economic crisis. Just one of these metros is in a coastal state: Sacramento (which I’ve long thought to be a tremendous bargain). As Kolko notes, the very large metro (more than 5 million people) offering the highest adjusted salary is Atlanta. At $70,600 that salary is still considerably less than in Toledo, Canton, or Detroit.
Conversely, the places where these adjusted salaries are lowest include a mix of expensive metros like New York; then resort and vacation destinations like Honolulu, Miami, Orlando and Myrtle Beach that have economies dominated by lower-wage tourism and hospitality jobs; and, at number six, a farming metro in California with low-wage agricultural jobs.
The drop in what workers take home after paying for housing is considerable. The same job pays nearly 50 percent more in Brownsville than it does in Honolulu after adjusting for cost of living, Kolko points out.
The story is different for tech workers, who do better in larger metros. Kolko writes that techies’ pay is 5 percent higher in large metros with more than 2 million people than in smaller ones with fewer than 250,000 people, even after adjusting for living costs. It is a whopping 25 percent higher on an absolute basis.
But—and this is a big and important but—tech workers are not better off in many of the nation’s most established tech hubs. Boston is the only large, established tech hub to make it into the top 10 places where techies take home most after paying for their housing—and it tops the list. Washington D.C. is second, and this may help explain its attractiveness to Amazon HQ2 as a more affordable tech hub. The only other technology center among the top 10 is Raleigh in the heart of North Carolina’s Research Triangle.
None of the nation’s other leading tech hubs makes the top 10—not San Francisco, San Jose, New York, Seattle, nor Austin. These places, which have long been expensive for most workers, are now seeing their spiraling housing costs eat away at the take-home pay of techies.
Most of the top 10 are “rise of the rest” places: Columbus, Charlotte, Indianapolis, Pittsburgh, Detroit, San Antonio, and Milwaukee.
The difference boils down to how different kinds and sizes of cities have come to specialize in different kinds of industries and occupations. Highly skilled, talent-driven industries and jobs concentrate in bigger places, while jobs and industries requiring less-skilled workers gravitate to smaller places.
As Kolko puts it: “The small-city advantage holds for adjusted salaries overall and for most individual occupations. It's especially strong in sales, transportation, and healthcare. Many job titles in finance and tech—both high-paying fields to begin with—pay more in larger metros than smaller ones even after accounting for the cost of living.” This in turn shapes the glaring inequality between highly-paid tech workers and finance types and everyone else: This has come to be a defining feature of the new urban crisis.
For Kolko, this can be explained in terms of the divergence between worker and corporate interests. As he frames it, even though workers, or at least most workers, are better off financially in smaller cities, companies are willing to pay significantly more for certain kinds of talent that is located in big cities. While workers and people care about the amount of the money they have left over to live on after paying for their housing, companies care about where they can find the talent they need.
It’s this basic conundrum that lies at the root of the growing geographic inequality, within and across places, that divides America today.
Richard Florida is a co-founder and editor at large of CityLab and a senior editor at The Atlantic.